The net result of deflation is to:
A)reduce the level of aggregate demand in the economy.
B)increase the level of aggregate demand in the economy.
C)be neutral and not affect the aggregate demand in the economy.
D)None of these statements is true.

Question

Quizplus · Accepted Answer

Deflation reduces prices, which may seem like a good thing for consumers, but it can lead to a decrease in aggregate demand as people may delay spending in anticipation of even lower prices in the future. Additionally, deflation can lead to a decrease in wages and increased unemployment, which further reduces aggregate demand.

The Net Result of Deflation Is To